Should You Take a Reverse Mortgage?

A reverse mortgage can be a useful financial tool in certain situations, but it's essential to consider both the benefits and potential downsides before deciding if it's right for you.

Benefits of a Reverse Mortgage

1. Access to Home Equity - A reverse mortgage allows you to tap into your home equity without selling your home. 

2. No Monthly Payments - You typically don't make monthly payments. The loan is repaid when you sell the home, move out, or pass away.

3. Stay in Your Home - You can continue to live in your home for as long as you like, provided you maintain the home and pay property taxes and insurance.

4. Tax-Free Funds - The money you receive from a reverse mortgage is generally tax-free, as it's considered a loan and not income.

   
   

Potential Downsides

1. Interest Accumulation - Interest on a reverse mortgage accumulates over time, which can significantly reduce the amount of equity you have left in your home.

2. Reduced Inheritance - The more you borrow, the less equity will be available for your heirs. When the home is eventually sold, the reverse mortgage must be repaid, which could leave little or no equity for your beneficiaries.

3. Fees and Costs - Reverse mortgages can come with higher fees and closing costs compared to traditional mortgages. These can add up, reducing the overall benefit.

4. Long-Term Considerations - If you need to move to a long-term care facility or downsize, the loan becomes due, and you may need to sell your home sooner than anticipated.

   
   

When to Consider a Reverse Mortgage

• If you need to supplement your income and have significant equity in your home.

• If you want to stay in your home for the foreseeable future and don't have other means of accessing funds.

• If you have no plans to leave your home to heirs or your heirs are comfortable with the reduced inheritance.

  
  

When to Be Cautious

• If you have other sources of income or assets that could provide the needed funds.

• If you're considering moving in the near future.

• If you want to leave your home as part of your estate.

  
  

Alternatives to a Reverse Mortgage

• Home Equity Line of Credit (HELOC) - Allows you to borrow against your home equity, but you must make monthly payments.

• Downsizing - Selling your home and purchasing a smaller, less expensive one can free up equity without taking on debt.

• Traditional Mortgage Refinance - Refinancing your existing mortgage might provide the funds you need with potentially lower costs.

• Selling and Renting - Selling your home and renting may be a more flexible option if you no longer need the space or maintenance of a home.

Before proceeding, I would highly recommend you consult with a professional financial advisor who can assess your specific situation and help you make an informed decision.

More Reading: 

• Reverse Mortgages - Financial Consumer Agency of Canada 

• Reverse Mortgage Vs. Home Equity Line of Credit  - Investopedia 

• Reverse Mortgage - Is It Right for You? - Nerd Wallet